Bankruptcy Alphabet: A is for Ask

We kick off the Bankruptcy Alphabet series with Ask. Too often, we fail to ask critical questions about debt because of feelings of embarrassment, shame or fear. I hope to be able to start a conversation about debt in general and spread good, useful, and sound information along with my colleagues around the country.

Fear of the unknown

Debt is one of those topics that no one likes to talk about, yet, it is so common. All you need to do is turn on the news to see it. It feels as though we are drowning in debt – mortgages, car loans, student loans, credit cards, etc. So, why is it that we don’t have more open, public discussions about debt? In fact, even among close friends, or family, we pretend like everything is okay, when in fact we are all trying desperately to keep our heads above water.

As a bankruptcy attorney, I work with people and small businesses with overwhelming debt on a daily basis, so needless to say, this is familiar territory. One thing I frequently encounter is a deep ingrained sense of shame by those coming in to see me. In fact, it’s not uncommon for clients to schedule, and reschedule their appointments several times before finally meeting with me. Many clients will cry, express anger or are simply deflated from the long struggles.

This is painful to watch because so much of this suffering is really unnecessary and self-inflicted. Oftentimes, once we address the fears and concerns about bankruptcy, one of the most common thing the client says is “this isn’t as bad as I thought.”

Oh, the lies

There is so much misinformation surrounding bankruptcy because people don’t ask the right questions or the right people. Here is common misinformation that I hear and people you should not rely on for advice.

1. Creditors.

This is defined as anyone that you owe money to. Be careful when asking your creditors about your debt. Needless to say, creditors have one objective – to get paid. I’ve seem too many clients believe the lies told by creditors. For example, “just make one payment” – this is dangerous because by making a single payment, you may be resetting the clock for statute of limitations (where enough time has passed and the creditor cannot collect from you).

Another one of my favorite lies is – “You can’t file for bankruptcy on our debt because it’s a business loan, medical debt, car loan, mortgage, Chase, etc.” Everyone wants to say they are just so darn special and because of this, you can’t file for bankruptcy on them. I say nonsense. There are very few creditors protected from a discharge. Namely, student loans, recent taxes, alimony, child support and a few select other creditors. Virtually all other debts are dischargeable. Don’t let creditors bully you.

2. Credit Score.

This is a tough one. A lot of people think they can’t get credit for 10 years after bankruptcy. This isn’t true. The bankruptcy will be reported on your credit history for up to 10 years but the negative impact usually passes within the first few years. I meet with a lot of clients who have 700+ credit score but have debt to their eyeballs. I say, isn’t it better to take a hit on your credit score now, and work on rebuilding it, rather than continue to struggle with your debt, without an exit strategy?

3. Loss of Assets.

Another common concern is “I’ll lose everything if I file for bankruptcy.” Bankruptcy is about protecting assets and getting rid of debts. California has very generous exemptions and most people keep all of his or her assets. If our assets exceed the exemptions, Chapter 13 is a possibility.

If you had some health ailment, you wouldn’t rely on your friends or Google to diagnose you – right? Similarly, if you are having debt problems, it makes a lot of sense to ASK professionals whose job is to advise you on debt. So, go ahead, pick up the phone and call your CPA, financial advisor, bankruptcy lawyer or other appropriate professional and ask away. I think you’ll feel better.